A case for joining the global carbon coalition

GS-III: Environment, Climate Change, Economy, International Relations

Why in News?

• Indian businesses in 7 industrial sectors made their first ever compliance filings on July 31st with the National Carbon Credit Trading Scheme (CCTS) of India.
• Since 2023, the plan has been active and has had binding targets, penalties, and actual organizations.
• The first credits should be released in October, and trading of the credits on power exchanges is anticipated to take place sometime during the period from November through January.
• The European Union, China and Brazil came together in Florence last May to create the Open Coalition on Compliance Carbon Markets (OCCCM).
  • The goal of this coalition is to ensure that all of the world’s compliance carbon markets can share information effectively with each other.
• The United States of America was the initial member of the International Energy Agency (IEA), with the subsequent addition of Germany and New Zealand.
  • Following these two nations were Canada, France, Norway, Singapore, Turkey and the United Kingdom.
• On September 14th, during their first meeting in Wuhan, the coalition developed their initial work plan.
• India has stayed outside so far.

Open Coalition on Compliance Carbon Markets (OCCCM)

• Purpose: A collaborative initiative for exchange on carbon pricing mechanisms, monitoring, reporting and verification (MRV) systems, carbon accounting methodologies, and rules related to the potential use of high-integrity offsets.
• Potential Long-Term Result: Better coordination between the different domestic carbon prices.
• Governance Structure: The governance structure is comprised of high-level meetings, executive-level meetings, thematic working groups and a secretariat.

India’s Carbon Credit Trading Scheme (CCTS)

• Framework: The CCTS is the current form of compliance carbon market framework adopted by the government, and it is presently in Phase One of development.
• Objective: The CCTS (compliance) has been established to meet India’s Nationally Determined Contributions (NDC) targets and its 2070 net zero emissions target.
• Current Status: Over 500 Indian businesses in seven different industries have submitted their initial compliance report.

Why India Must Consider Joining the OCCCM

Proliferation of Carbon Pricing Systems

• Increasing adoption: Currently, there are more than 50 countries that use carbon pricing to help control greenhouse gas emissions.
  • As we move closer to our goal of reaching net zero emissions, it’s very probable that more and more countries will begin using a carbon pricing model.
• Cost-Effective Mitigation: Carbon pricing provides a way to reduce emissions at the least possible expense to society as a whole. This is especially important for the Global South.
• Promoting innovation: While it can promote innovation, it should also minimize the effects that it will have on vulnerable populations.
• Fiscal Revenue: The amount of money that governments collect through taxes and other means could be very large during periods of increasing demand for government services (such as those resulting from climate change) and declining availability of funding.
• Interoperability: Linking India’s CCTS (Compliance) to other Carbon Trading Systems may have value because it provides an opportunity to generate income from those countries that have stricter mitigation goals than India.

Preparedness for Climate Clubs and CBAM

• Emergence of Climate Clubs: As geopolitics disrupts the UNFCCC’s ability to negotiate and focus shifts from negotiation to action, the concept of climate clubs has begun to gain traction again.
• EU Carbon Border Adjustment Mechanism (CBAM): After the EU CBAM has been put into effect, numerous other nations have begun to consider developing their own versions of CBAM.
• Potential Scenarios: Climate coalitions formed around the CBAM can take many forms including having all members charge the same price for carbon, giving incentives to members of the coalition, and/or penalizing those who are not members of the coalition.
• Role of OCCCM: The role of OCCCM in relation to its goals concerning MRV, carbon accounting and the development of domestic compliance markets will prepare India for the CBAM world.

Potential Risks and Concerns

• Evolving Decisions: As discussions develop, it appears as though there will most likely be several important decisions made by the coalition members.
• Need for Participation: It is essential that you participate in the discussion and help guide the direction of the conversation instead of simply reacting to events from a distance.
• Risk of Exclusion: The risk is more in being an outsider.
• Developing country representation: Brazil was a founding member, and there will be other developing countries that have similar views that are currently joining as well, so this should provide some reassurance to India.

Way Forward

• Join the Coalition: India has a great opportunity to join the OCCCM earlier than later.
• Shape Global Discussions: India should participate in discussions and shape the development of carbon market rules rather than respond to developments as an outsider.
• Strengthen Carbon Markets: Improve domestic compliance markets, MRV systems and carbon accounting methodologies.
• Prepare for CBAM: Increase your readiness to interact with different countries’ carbon pricing systems and their respective border carbon tax structures.
• Explore Interoperability: Link India’s CCTS with other carbon trading systems.
• Protect National Interests: Collaborate with the Coalition, while keeping in mind India’s Decarbonization Options and the changing Geopolitical Environment.

Conclusion

• The geopolitical landscape is expected to be fragmented; climate talks are likely to experience similar roadblocks; and more and more countries will adopt carbon prices.
• In addition to those made within the context of the Paris Agreement, external actions are expected to play a larger role in helping to achieve the objectives of the Paris Agreement.
• The OCCCM fits in nicely with India’s efforts to reduce emissions and provides an excellent opportunity to understand how carbon markets work and to develop national carbon pricing policies and/or border carbon taxes.
• India should consider making this move sooner rather than later.

UPSC Mains Practice Question

Q. Why should India consider joining the Open Coalition on Compliance Carbon Markets (OCCCM)? Discuss its significance in the context of global carbon pricing systems and the European Union’s Carbon Border Adjustment Mechanism (CBAM).

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